With the CIT debt exchange only 30 minutes away from closing, more news agencies are getting in the act of calling a CIT bankruptcy – this time we have Reuters.

Sources familiar with the matter have told Reuters that the voluntary debt exchange is unlikely to happen, and bankruptcy is much more likely.

Analysts have argued that the debt exchange was doomed from the start, because it required too many different kinds of investors with too many competing interests to comply.

When Lehman collapsed last fall the government was there to step in; however, officials have stated a number of times CIT is not “too big to fail.” I would argue no institution is too big to fail, but it makes one wonder why CIT is not getting the attention of the government when their role in small business economics is obvious.

Trade and Retail groups fear such an event will impact supply chains, and small business owners believe their ability to expand will be stopped, the future remains unclear. A large number of people believe a CIT bankruptcy may provide a devastating blow to the economy  but the reality is that remains to be seen.

Frankly, I cannot see how such an event would be a “good thing” for the economy, nor can I see the credit market reacting in a positive manner.

What I find interesting is that you do NOT hear about CIT Bank – their Utah based retail operations - in any of the reports.  As the FDIC has already stated CIT Bank must raise additional funding, would it be that much of a surprise we saw a press release tomorrow evening talking about the bank going under? Would it also surprise anyone to find out the government is standing by to sell CIT to another bank (a la Wachovia)?

I personally believe such an event is item number 3 over the past 10 days that would stress the economy.  CIT very well may be the ripple that creates the Tsunami.

The bottom line is this: CIT is to small business credit and financing what Lehman was to derivatives.

Market consolidation continues.

Citigroup (C) will buy the Wachovia banking assets for $2.2 billion in an all-stock deal. Wachovia was the fourth largest bank in the United States which had about $53 billion debt and a loan portfolio worth more than $300 billion. Due to the purchase Citi will have roughly $42 billion of losses due to bad debt.

Here is the real kicker – let’s say you were a Wachovia share holder. On Friday ever share you owned would have been worth $10 but, as you woke up Monday morning, your shares would have been worth .86 per share.

Ouch.

UPDATE: Why did Wachovia need to sell so quickly?

Be cause it ran out of time. That is to say the bailout did not happen quick enough, it could not get rid of it’s bad loans, and needed to sell before it collapsed.

UPDATE: Shares of National City Pluge 52%

The stock market is wondering who is next to go and, by the looks of it, they are thinking it may be National City.